Fed lifts USD, how long will momentum last? – SocGen

Research Team at Societe Generale, suggests that the realignment of rates and FX markets after the hawkish Fed minutes probably has further to go if Fed chair Yellen reinforces the case for a rate increase in June.

Key Quotes

“This implies further tactical or short-term gains for the dollar and US bond yields. The rebuilding of long USD positions potentially sets up EUR/USD for a return below 1.10. The case for a more strategic (long-term) shift is not clear and depends on an adjustment in longer-term US rate expectations (1y2y forward only 1.50%), and the chances of a Trump election victory. The frailties of China’s economy also means it is not in the interest of the G7/G20 to let the dollar get too strong.

Emerging market Research Team at Societe Generale, suggests that the realignment of rates and FX markets after the hawkish Fed minutes probably has further to go have enjoyed a formidable run since February thanks to the rebound in oil and other commodity prices, and reduced pessimism over China. They are now set for a more challenging period as US interest rates return to centre stage and concerns over debt levels re-emerge. Asia and Latam have been among the largest recipient of portfolio flows since March and could face a more challenging period.”